3Q18 performance meets expectations
Zhangyuan tungsten industry announced 1-3Q18 results: operating income was 1.39 billion yuan, down 2.0% from the same period last year; net profit attributed to the parent company was 27.78 million yuan, up 44% from the same period last year, corresponding to 0.03 yuan per share; net profit after deducting non-parent net profit was 13.86 million yuan, down 11% from the same period last year. Non-recurrent profit and loss mainly included government subsidies of 21.65 million yuan. 3Q18's revenue was 440 million yuan, down 0.9% from the same period last year, and its net profit was 10.41 million yuan, down 26% from the same period last year and 3% from the previous year. The net profit after deducting non-return was 3.54 million yuan, down 47% from the same period last year. The year-on-year decrease in 3Q18 performance was mainly due to higher asset impairment losses, lower other income and higher income tax.
Comments: 1) 3Q18 tungsten prices increased year on year, month-on-month pullback. The average price of 1-3Q18 domestic tungsten concentrate is 108,000 yuan / ton, an increase of 26% over the same period last year. The average price of 3Q18 is 103,000 yuan / ton, an increase of 3.5% over the same period last year, and a decrease of 8% from the previous year. The domestic APT price of 1-3Q18 is 172,000 yuan / ton, compared with the same period last year. The average price of 3Q18 is 166,000 yuan / ton compared with the same period last year, an increase of 9% over the same period last year and a decrease of 6% from the previous month. 2) the gross profit margin improved compared with the same period last year. Affected by the rise in tungsten prices over the same period last year, 1-3Q18's comprehensive gross margin year-on-year + 4.2ppt to 16.7% dagger 3Q18 comprehensive gross margin year-on-year + 4.1ppt to 17.1%, a month-on-month reduction of 0.5ppt. 3) the impairment loss of 3Q18 assets increased by about 8.21 million yuan compared with the same period last year, and the effective tax rate increased from + 16.7ppt to 48.9% compared with the same period last year, which had an impact on the results of the third quarter. The asset impairment loss of 1-3Q18 Company was + 1413 yuan / 1.6x compared with the same period last year, mainly due to bad debts and provision for inventory price decline. 4) the net cash flow of 1-3Q18 operating activities was-56.84 million yuan, which was better than that of-360 million yuan in the same period last year.
Trend of development
Tungsten fundamentals are relatively stable. Since the third quarter, domestic tungsten concentrate and APT prices have been adjusted back by 7% and 11% respectively, mainly affected by weak demand and the resumption of production in some APT smelters. From January to August this year, domestic tungsten concentrate production decreased by 1.3% compared with the same period last year, and it is expected that the future supply will still be affected by environmental factors. On the other hand, the uncertainty of Sino-US trade causes some pressure on tungsten demand, but the overall trend of domestic manufacturing industry is stable. Generally speaking, the pattern of tungsten supply and demand is expected to remain stable, and the price downward space is limited.
Profit forecast
3Q18 performance is in line with expectations, maintaining the 2018 Universe 19e profit forecast of 0.04 yuan.
Valuation and suggestion
The company's current share price maintains a neutral rating corresponding to 2.3xPamp B in 18max, 1919, but due to market expectations on the demand side in 2019, the sector's valuation has been downgraded as a whole, and we have lowered our target price by 21% from RMB7 to RMB5.5.There is room for an increase of 14% compared to the current share price of 2.6xPamp B in 1919.
Risk
Tungsten demand was lower than expected; tungsten prices fell more than expected.